Coalspur Mines Limited (ASX: CPL, TSX: CPT) is pleased to announce the completion of a positive Scoping Study which confirms the potential for an economic and technically feasible underground longwall mine at the Company's wholly owned Vista Extension property.
The Scoping Study is based on the recently completed Coal Resource estimate which comprised 173.7 million tonnes ("Mt") in the Measured and Indicated Mineral Resource categories and 969.3Mt in the Inferred Mineral Resource category.
Coalspur retained Golder Associates Ltd. ("Golder"), formerly Marston Canada Ltd, to complete the Scoping Study, which defined a 28 year mine plan producing an average of 3.8 million tonnes per annum ("Mtpa") of saleable coal from the processing of approximately 6.3Mtpa run of mine ("ROM") coal.
The Scoping Study confirms the potential for strong economics on Vista Extension which has the capacity to generate operating cash flow of approximately C$153 millionper annum. Vista Extension will benefit from the infrastructure to be constructed for the Company's adjacent flagship Vista Coal Project ("Vista"), thereby greatly reducing the upfront infrastructure requirements for Vista Extension. This infrastructure includes the coal handling and processing plant facilities. Coalspur will progress with additional exploration drilling and technical studies to validate the potential of Vista Extension.
Commenting on the Scoping Study, President and CEO Gill Winckler said: "The Vista Extension scoping study validates Coalspur's strategic acquisition of these leases earlier this year and confirms the potential for another world class project in our portfolio. We believe that Vista Extension provides more development optionality for Coalspur and a platform for capital efficient production growth. We recognise the upside that Vista Extension potentially adds to Vista and plan to commence a pre-feasibility study in 2013 that will examine scenarios for the integration of the two projects. In the short term, we remain focused on securing funding and regulatory approvals for the Vista project."
Phased Approach to Development
Coalspur is adopting a phased approach to the development of its properties to ensure an efficient regulatory approval process and a minimisation of upfront capital requirements. The first project, Vista, is scheduled to be developed in two phases, namely Phase 1 which will produce 5.0Mtpa and Phase 2 which will produce an incremental 7.0Mtpa. The capital cost for Phase 1, which has already received a Mine Permit and Processing Plant Approval, is C$870 million. Additional capital of C$373 million is required for Phase 2 which will increase production to full capacity of 12.0Mtpa. The table below illustrates the funding strategy for Vista and Vista Extension.
Coalspur is undertaking initiatives in relation to funding the capital required to develop Vista. These initiatives include evaluating the utilization of contractors for the construction phase and initial years of mining which will reduce the upfront capital costs of mobile equipment. Coalspur is also progressing project financing discussions with potential off-take partners which may reduce the funding requirements and provide long term marketing arrangements for the Vista coal.
Scoping Study Parameters
The Scoping Study was completed using the follow parameters:
The key considerations in the Scoping Study were mine scheduling, throughput rate, coal handling and processing, operating and capital cost assessment and integration with development on Vista. The mine life of Vista Extension is 28 years at an average clean coal production rate of 3.8Mtpa from a ROM production of 6.3Mtpa.
The Scoping Study is a preliminary investigation of a development scenario for Vista Extension which contains a number of economic and technical assumptions. These assumptions include Inferred Mineral Resources which are considered too geologically speculative to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves. Certain assumptions have been made during the creation of the Scoping Study, including estimates on capital costs, operating costs, geological conditions and mine productivity. There is no certainty that the Scoping Study will be realized.
Initial capital costs are estimated at C$346 million. These costs, which are itemized below, include mining equipment, infrastructure and working capital requirements.
During the LOM, average annual sustaining capital is estimated to be C$37 million. The sustaining capital will be funded with cash flow generated from Vista Extension.
The life of mine ("LOM") average estimated operating cost of Vista Extension isC$58.20 per clean coal tonne FOB Ridley, which does not include taxes and royalties. Operating supplies and maintenance costs are higher in the developing years of the mine. As the longwalls are established these costs decrease and remain steady for the life of the mine. The LOM operating costs are summarized in Table 4.
Operating supplies, maintenance, utilities, general and administrative and other costs were estimated using recent data from several mines with similar equipment. The utility cost was estimated based on the cost of energy of C$0.095/KW-hr, and an estimate of the power usage of the mine. The G&A cost included a 5% Federal sales tax and an assumed G&A cost of C$1.00/clean tonne. The other cost wasC$0.50/clean tonne, which was a factor used to represent miscellaneous expenses.
The Scoping Study is based on the geological model used for the Vista Extension Coal Resource estimate recently completed by the Company. Estimates of coal resources for the Vista Project were unaffected by this Scoping Study. The Coal Resource estimate, which is based on drilling and exploration activities undertaken on Vista and Vista Extension, was prepared by respected Canadian independent technical consultants and is reported in accordance with the JORC Code (2004) and National Instrument 43-101 ("NI 43-101").
Note: Vista Extension Coal Resource estimates effective May 8, 2012, Vista Coal Project Coal Resource estimates effective May 8, 2012 and Vista South Coal Project Coal Resource estimates effective May 22, 2010.
Golder has completed an indicative assessment of coal quality of the two plies proposed for underground mining based on historical core hole information which concluded that a clean product could have the following characteristics:
The above analysis is on a gross as received basis and assumes a constant washed quality value equal to that found on Vista. Golder assumed the clean coal yield to be 61.5%. Further drilling and coal quality test work will be conducted during 2013 to confirm these conclusions.
The mine plan developed by Golder was limited to 600m of overburden, and assumes production from two seams, the Val d'Or V3U and the McPherson P2-P3 seam. The mine will produce an estimated 108Mt of saleable coal from 178Mt of ROM coal over 28 years. To minimize stress interaction between the seams and damage to the upper seam, the Val d'Or seam is planned to be mined first with production from the lower McPherson seam beginning in year five. Seam thickness in the Val d'Or ranges between 3.5m to 5.0m (average of 4.4m). The McPherson P2 seam ranges in thickness from 1.0m to 2.5m (average of 1.9m) and the McPherson P3 seam ranges from 1.0m to 2.0m (average of 1.8m). The parting between the P2 and P3 plies is proposed to be extracted with the plies.
The mine plan was limited to areas where the geological model projected the seam dips to be less than 10°. Longwall mining operations can operate at greater dips but incur increased operating costs for development and production, as well as increased complexity in managing the mine face.
Average mine manpower estimates are 221 (53 salaried and 168 hourly) which includes mine operations, mine maintenance, technical and senior management staff. Two sets of mining equipment are assumed for the mining operations: one for the Val d'Or seam and the other for the McPherson seam.
Coal Processing Plant
Vista Extension has the ability to leverage off of the infrastructure to be constructed on Vista due to its close proximity. The initial development capital for the coal processing plant on Vista Extension is estimated at C$98 million. This cost represents the construction and installation of a third processing and drying module for the coal preparation, drying and materials handling facilities that will be required at the Vista facility to process the ROM coal from Vista Extension.
Freight and Export
Coal from Vista Extension could be railed to a number of ports on the west coast of Canada. For the purposes of the Scoping Study it was assumed that tonnages will be railed to Ridley Terminals Inc. ("Ridley Terminals") in Prince Rupert, British Columbia where they would be loaded onto vessels up to cape size class for export to customers. Coalspur has signed a Memorandum of Understanding with CN to rail coal from Vista to Ridley Terminals, where the Company has agreement for up to 13.5Mtpa of throughput allocation for up to 21 years. Options for the export of Vista Extension coal will be examined during the pre-feasibility study.
Scoping Study Economics
Vista Extension has the potential for strong economics with the capacity to generate operating cashflow of approximately C$153 million per annum. A summary of the economics is set out in Table 7.
Revenue for the Scoping Study is based on Newcastle, Australia ICE globalCOAL future price for 2016 for a 6,300 kcal/kg gross as received FOB of C$111.70. This price was adjusted to Coalspur's estimated gross as received average calorific value of 5,787 kcal/kg (C$102.60).
Next Steps on Vista Extension
Coalspur will continue to progress its technical and economic evaluation of Vista Extension however the priority for Coalspur in the short term will be to progress the regulatory, detailed engineering and project financing activities on Vista. The Company will undertake further drilling on Vista Extension in early 2013 which will provide enhanced coal quality data and further representation of the variability of the potential mining conditions in the area. Following the drilling program the Company will commence a pre-feasibility study on Vista Extension and a JORC Code (2004) NI 43-101 compliant technical report.
The full version of this announcement is available on the Company's website at www.coalspur.com and SEDAR at www.sedar.com